I kept hearing, however, that his best book was Smart Women Finish Rich, that it provided the best cohesive view of Bach’s philosophy. I picked it up at a book sale with the intent of reading it and then encouraging my wife to read it as well since it’s obviously intended to focus on women’s issues.
Is the book worthwhile to read? Does it really target women or should it have been called Smart People Finish Rich? Let’s find out.
A Wade Through Smart Women Finish Rich
The book is designed around a seven (or nine, depending on the version) step plan for achieving financial security. Some versions of the book claim seven steps on the cover while others claim nine, but the content is actually virtually identical in both versions – they include seven primary steps and two thorough appendices with more information.
Smart Women Finish Rich starts off with an introductory chapter that makes a powerful argument for why individuals, particularly women, should understand the basics of personal finance. Bach even argues that women are often predispositioned to be better at personal finance management than men once they take that first step to learn about it – and that first step is what Smart Women Finish Rich is intended to be. From here, the book is broken into seven “steps” to follow to start being financially secure, followed by two detailed appendices well worth reading.
Step 1: Learn The Facts – And Myths – About Your Money
There are three primary myths that are taken apart here: make more money and you’ll be rich, someone will always be there to take care of you, and the government has inflation under control. All of these are false and all of these are reasons why you need to spend less than you earn and plan for the future, no matter what situation you find yourself in.
Step 2: Put Your Money Where Your Values Are
Here, Bach describes an aspect of personal finance that many people skip over and don’t think of as important – I actually think it’s of paramount importance. Basically, it boils down to writing down as many answers as possible to the following question: what is important about money to you? Note that these shouldn’t directly be tasks that you can just walk out and accomplish – those are goals. For example, values include security, freedom, confidence, helping family, and independence.
Why do this? You’re specifying the very basic ideas that are important to you in your life so that later on, when you define your goals, they’re in line with your values and thus your financial targets and achievements actually match what is truly most important to you.
Step 3: Figure Out Where You Stand Financially … And Where You Want To Go
The first part often seems overwhelming, but Bach breaks it down well by simply saying, “Get started.” Just collect as much financial paperwork as you can – information that covers all of your income, debts, and assets. The process of finding these documents is in itself important as it is the beginnings of financial organization, which is absolutely vital. Why? Being organized financially and knowing where you stand lets you really understand what you need to do in the future. For example, you might feel you don’t have much debt, but when you start looking, you may come up with a lot of little debts that, if you just knocked them all out, would put you in much better financial shape.
This information, along with the values of the second step, provide you with all you need to begin setting some goals: paying off your debts, saving some money for specific future reasons (like retirement, for example), and perhaps also investing for your own financial security. Make the goals specific and measurable, write them down, and begin taking immediate action towards each one. You don’t have to come up with a complete financial plan for the rest of your life – just a goal of paying off your debts will work if you write it down, get started immediately, and put a reminder of that goal where you can consistently see it.
Step 4: Use The Power Of The Latte Factor … How To Create Massive Wealth On Just A Few Dollars A Week!
This chapter basically lays out Bach’s oft-repeated “Latte Factor.” Basically, the idea is that if you trim out a few small pieces of your daily routine (like a morning latte), you can save a huge amount of money over time. It actually does work quite well, but Bach’s numbers are pushed up to the point of straining credibility – you won’t become a millionaire by skipping your morning latte, but it can definitely be a piece in turning your financial life around, because saving $5 every weekday on a latte means a $100 debt repayment each month, or $1,200 a year. That can help with knocking out a car loan much faster and end up being just enough to really feel more financially secure.
Step 5: Practice Grandma’s Three Basket Approach To Financial Security
This is the longest chapter in the book, but it boils down to a very simple idea. Each month, you should contribute some money to your security (having good insurance, having an emergency fund), your retirement (automatic 401(k) contributions, a Roth IRA), and your dreams (a savings account or an investment plan). In effect, most of the content of The Automatic Millionaire is in this chapter, as the key to really making these work is to set up automatic deductions for each of them. Have the money for your insurance and 401(k) automatically deducted, then open up an online savings account to handle your emergency fund and your dream account and have regular automatic deductions into these.
Many people respond to this by saying that money is too tight as it is, but that’s why the “latte factor” is useful. If you just cut one little piece out of the daily routine, suddenly you have some cash on a monthly basis to do this stuff.
Step 6: Learn The Nine Biggest Mistakes Investors Make And How To Avoid Them
Most of these mistakes are either psychological (“giving up”) or debatable (“getting a 30 year mortgage,” as has been debated on The Simple Dollar all week), but they’re still worth reading because they’re all worth thinking about. In a nutshell, the best way to avoid most of these mistakes is to sit back, make many of your financial choices automatic by setting up deductions and transfers, and just let it ride.
Step 7: Follow The 12 Commandments Of Attracting Greater Wealth
The final step is some very basic career management advice. Most of it boils down to clearly defining what your role is, doing that role as well as you can, and not doing things outside of that role. This is really the key to excellence in the workplace. Many people get bogged down by accepting tasks way outside of their role then failing to really excel at the things within their role – I see this all the time in the workplace.
Appendix 1: Where Does Your Money Really Go?
This appendix (and the next) are more or less steps eight and nine, a change alluded to on the cover of some versions of this book. This first appendix is basically a listing of all of the potential places where you may be spending money each month. Take the time to actually tally the spending of the last month for each of these categories, then really look at many of them and ask yourself whether that spending put you in a better place. You’d be surprised how powerful that little question can be if you let it lead you.
Appendix 2: Financial Inventory Worksheet
This is almost a complement to the previous worksheet, as it basically lays out in detail how to calculate your net worth. Why do this? Your net worth is a great thumbnail indicator of your financial health, particularly over time. Get into the habit of calculating your net worth every month so you can keep track of your direction over a longer period.
Buy or Don’t Buy?
This book has convinced me that a person only ever needs to read one David Bach book. Why? The vast majority of the content in this book, Smart Couples Finish Rich, and The Automatic Millionaire is basically identical, only slightly rewritten for a different audience.
The books have different targets, however, and I think this one is clearly the most appropriate for single women and also women in relationships where the partner dominates the finances. If you find yourself in either case, this book is well worth reading, particularly if you’re just getting started with a financial turnaround.
In a nutshell, reading one David Bach book is worthwhile – reading more than one is pretty redundant. Choose Smart Couples Finish Rich if you’re in a relationship where both people are reasonably equal in terms of financial planning, otherwise choose this one if you’re female or else read The Automatic Millionaire. Don’t bother reading multiples.
Smart Women Finish Rich is the fortieth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.